Eastern Germany Since Unification: Wage Subsidies Remain a Better Way

Abstract

German unification, according to Bismarck, was achieved by blood and iron. Over a century later, the reunification of Germany in 1990 was secured without war, but blood has again been shed: the economic cost of unification has exceeded all expectations. In this chapter we argue, that the policy response to unification has been inappropriate, and hence unnecessarily expensive; the adoption of a universal, temporary wage subsidy in Eastern Germany would have been the preferred solution (Begg and Portes (1991).